Asia eyes Russian Arctic gas as Australian costs climb

SummaryNovatek, which holds 80 percent of the Yamal liquefied natural gas licence has no rights yet to export future production.

Plans to export gas from the Yamal peninsula on Russia's Arctic coast are attracting Asian gasbuyers and investors who have been put off Australian developments by soaring costs, according to the Yamal project's owner.

Novatek, which holds 80 percent of the Yamal liquefied natural gas (LNG) development licence but has no rights yet to export future production, is offering for sale a 29 percent holding to help fund development.

State-backed number-one Gazprom's monopoly on Russian gas exports is seen as a major barrier to that sale, and to the project's future. However, access to major resources is increasingly limited worldwide, and Moscow has just launched a review of whether to liberalise gas exports.

In addition, according to Novatek's chief financial officer Mark Gyetvay, the rising costs of Australian projects being pursued by Royal Dutch/Shell, Chevron and others are increasing the attraction of Yamal.

"From our experience with the Australian side we are seeing more interest from Asia-Pacific buyers to look at our project where a year ago their primary focus would have been closer to home," he told a conference in London this week.

"We are talking to companies now in the Asia-Pacific region largely because they see that there's a huge amount of risk from all these Australian projects that either may not come onstream, or they can get a better deal by coming into a more cost-effective, conventional onshore type development."

Australia has nearly $190 billion of liquefied natural gas export projects under construction that would add more than 80 million tonnes per annum (mtpa) of LNG production before the end of the decade, an increase that would make the country the world's top LNG exporter.

But by last November, three of seven Australian LNG projects in early stages of construction had already announced cost hikes averaging more than 20 percent, mainly because of rising labour outlays and the strong Australian dollar.

And industry experts say few additional projects are likely as investors are turning towards lower-cost locations such as North America and East Africa.

Novatek and Total plan their first 5 million tonne per year Yamal LNG line in 2016 to liquefy gas from the 418 billion cubic metre (bcm) South Tambei field on the Yamal Peninsula.

They hope to raise capacity to 15 million tonnes by 2018 and ship the LNG east through Arctic seas using special icebreaker vessels. But a final investment decision on Yamal is two months overdue.